AMD And Cryptocurrency: Future Tailwind Or Headwind?

There may be trouble for AMD and cryptocurrency will be to blame, according to one firm. Advanced Micro Devices is one of the best-performing U.S. stocks this year, and it has been riding on its success in cryptocurrency mining. Meanwhile, the chip maker’s largest shareholder dumped tens of millions of shares recently — for the second time this year.

AMD and cryptocurrency: just a passing fad?

In a note to investors this week, Barclays analyst Blayne Curtis outlined their warning about AMD and cryptocurrency, particularly in light of the chip maker’s last earnings report. The firm continues to rate AMD at Underweight with a $9 price target.

The chip maker recorded a tailwind from Ethereum mining, which he said is nothing but a passing craze. As a result, he recommended that when it comes to AMD and cryptocurrency, investors should almost ignore this segment and assign it “very little value” in the company’s earnings. He added that this doesn’t necessarily mean the chip maker will miss its September quarter guidance because its GPUs “are still widely sold out and there will be a restocking phase.”

However, he does feel that estimates might be too high next year if the Ethereum mining tailwind dries up. He doesn’t see AMD is seeing much traction yet with its new Epyc server chip, but the headwind he actually sees for AMD and cryptocurrency just supports his Underweight thesis for the stock, he added.

Cryptocurrency drove almost all of AMD’s earnings beat

Curtis pointed out that nearly all of AMD’s earnings beat was driven by cryptocurrency mining. He said the most recent set of Mercury data reveals that the chip maker’s PC business actually declined in June. Even though AMD launched its Ryzen processors, its desktop PC business was only slightly up, and Mobile was actually down. As a result, GPUs drove almost all of the June quarter’s beat, and he predicts that it will drive nearly all of whatever amount of beat the September quarter might bring.

The Barclays analyst added that it’s possible gaming contributed some of the upside to estimates, but excluding cryptocurrency, AMD has actually lost share of the discrete graphics market to NVIDIA. He doesn’t expect the chip maker’s Vega to do any better.

“By our math, it is already unprofitable to purchase a GPU at retail price for Ethereum mining let alone the 1.5-2x they are selling for,” he wrote. “… We estimate a negative 12 month payback with the currency below $350 (or nearly $550 at current above retail GPU prices) and that likely only gets worse as the difficult steps up ahead of the transition to Proof-of-Stake,” which he said actually eliminates mining.

AMD’s largest shareholder unloads 40 million shares

Shares of AMD surged on Monday and stabilized on Tuesday following a few rough trading days last week. According to a Seeking Alpha post, the chip maker’s stock tends to sell off in the days following an earnings beat as investors take profits.

One such investor may be Abu Dhabi-based Mubadala Investment Company, which told Reuters on Friday that it had sold a 3.9% stake in the chip maker. It was the second sale of AMD shares this year, and it unloaded 40 million shares. Despite the two sales, it remains the chip maker’s biggest shareholder. A spokesperson for Mubadala told Reuters that the share sale is in line with their long-term investing strategy which involves their goal to “optimize our shareholding in certain assets and monetize them at the appropriate time.”

The stock declined by as much as 0.82% to $13.32 during regular trading hours on Tuesday following Barclays’ warning about AMD and cryptocurrency mining.